By Sherry Brady , Branch Manager , Summit Mortgage Corporation
Whether you are a first-time homebuyer , or you ’ re about to purchase your fifth home , there is one thing that we all have in common : the need for good credit . What is your credit score ? Do you know what things you might be able to do to improve it ? How much will your credit score impact the type of loan you qualify for , the interest rate you get , or whether you ’ ll be able to get a loan at all ? If you are considering buying a home within the next 12 months should know what information is reflected on your credit report .
The first step is to talk to your lender who will pull your credit report and score . Your lender can advise you what loan types you will qualify for based on your score , and other factors , and if there is anything on your report that needs to be cleared up , they can let you know . If everything is accurate though , and your score is still lower than you ’ d like , we may be able to advise you of some things you could do to improve it .
There are several factors considered in the calculation of your credit score , but two things make up 65 % of your score ! They are : do is pay your bills on time ? and do you use revolving credit responsibly ? ( i . e . don ’ t “ max out ” your credit cards ). Obviously , you know why it ’ s important to pay your bills on time , but why does not maxing out your credit card limits matter so much ? Because if your credit cards are charged up to their limits , this gives the appearance that you can ’ t manage your credit wisely and perhaps that you are even using credit cards to live on . Paying down credit cards is probably the area where you could have the greatest impact on
your score ; if you don ’ t have any outstanding collections or negative data , then paying your credit cards down will give you the most “ bang for your buck ” when it comes to increasing your score .
Other things that impact your score are how many inquiries you have , how many new accounts you have , and your “ mix ” of credit . Ideally , you should have both installment and revolving accounts reporting . Don ’ t apply for a lot of new credit when you ’ re trying to prepare to buy a home ; multiple recent inquires – especially for credit cards – can lower your score .
Also , whether you ’ ve paid your rent on-time for the last 12 months will probably be looked at , especially if you have very little other credit showing up on your credit report . Be sure to always pay your rent on time , and in a way that can be documented , such as by check or auto-drafted from your checking account . Try to avoid paying your rent in cash . That ’ s very difficult , if not impossible , to prove a payment history for .
Whether we like it or not , our credit score plays a role in everything we do these days – from buying a home , to getting a job . One thing is for certain : good credit doesn ’ t just happen , and today , more than ever , it ’ s important to actively manage your credit rating .